Stocks fall; rate cut adds to fears

The Dow loses 785 points after the Fed’s emergency action. Bond yields also end lower.

Fear and uncertainty continued to control Wall Street, with U.S. stocks falling sharply Tuesday after an emergency interest-rate cut by the Federal Reserve failed to reassure markets racked by worries that the fast-spreading coronavirus outbreak will cause a recession.

The Dow Jones industrial average sank 785.91 points, or 2.9%, to 25,917.41. It had surged 5% on Monday as investors hoped for a broader set of stimulus measures.

Although the cut gave some investors exactly what they had been asking for, Federal Reserve Chairman Jerome H. Powell acknowledged that the solution to the virus outbreak must come from health experts, not from central banks. Some traders wonder whether more aid is on the way to stabilize the market, while others called the Fed’s move premature to begin with. For more than a few, the Fed’s steepest rate cut since 2008 recalled the dark days of the financial crisis and only added to the dread.

Through it all, markets still face the quandary that has sent stock prices tumbling 11% since their record highs of just two weeks ago: No one knows how far the virus will spread before authorities can get it under control, and how much the outbreak will harm companies’ profits.

That uncertainty led to jagged trading across markets Tuesday. Stocks rallied briefly in the morning after the Fed’s surprise move, but it took just 15 minutes for the gains to evaporate. The yield on the 10-year Treasury fell below 1% for the first time in history as investors ratcheted back expectations for the economy and inflation. The VIX “fear index,” which measures traders’ expectations of upcoming volatility in the stock market, jerked wildly up and down throughout the day.

After popping to a 1.5% gain shortly after the Fed’s announcement, the Standard & Poor’s 500 index wavered between modest gains and losses for about an hour before turning decisively lower. The index ended the day down 86.86 points, or 2.8%, at 3,003.37 — its eighth drop in the last nine trading days. The Nasdaq composite fell 268.07, or 3%, to 8,684.09.

Bond yields swung after the Fed’s announcement. The yield on the 10-year Treasury slumped to 1.01% from 1.08%, and during the day it touched below the 1% threshold for the first time. The 10-year yield tends to fall when expectations are for weak economic growth and inflation. Shorter-term yields, which move more on Fed actions, had even more dramatic drops. The twoyear Treasury yield sank to 0.71% from 0.81%.